With pressure mounting to cut the budget deficit and make U.S. industry more competitive, some Bush administration officials say they have a way to make environmental protection more cost-effective: Offer industries financial incentives to clean up their own acts by charging, them for polluting and rewarding them if they don't. It is a free-market approach to the environment that has gained support even among some environmental groups, but critics worry that it simply will give businesses a license to pollute.

In the nearly 20 years since environmentalists galvanized public opinion with the celebration of Earth Day, the federal government has passed dozens of laws and spent billions of dollars to clean up the environment. With a few notable exceptions, however, the environment still seems to be a mess. Summer smog alerts have become almost commonplace. Toxic wastes continue to leach into groundwater. Acid rain continues to fall. Medical wastes wash up on once pristine beaches. Scientists warn of the threat of global warming—the so-called “greenhouse effect”—caused by burning fossil fuels.

Now Congress and the Bush administration are weighing new campaigns to protect the environment. But even as they do so, the federal budget remains mired in deficit and U.S. industry is under siege from Japanese and European competition. Under current circumstances, says economist Robert N. Stavins of Harvard University's John F. Kennedy School of Government, “if we're going to have environmental protection, we've got to do it at the least cost possible.”